Euro continues losses following Italian election

Bloomberg

Europe’s 17-nation common currency posted its longest stretch of weekly losses since June last year as demand slumped after Italy’s election produced a hung parliament and eurozone unemployment climbed to a record.

The Dollar Index rose to the highest level since August last year as investors weighed the US government’s failure to avoid automatic budget cuts. The euro fell below US$1.30 for the first time in two months as the region’s inflation rate was below the European Central Bank’s 2 percent ceiling before a policy meeting on Thursday.

The US Department of Labor may report on Friday that US employers added 160,000 workers last month, a Bloomberg survey shows.

The euro fell 1.3 percent this week to US$1.3022 in New York after dropping 3.8 percent last year, snapping a six-month rally. The single currency touched US$1.2967, the lowest level since Dec. 11 last year, and weakened 1.1 percent to ￥121.87. The dollar rose 0.2 percent to ￥93.59.

The Dollar Index, which Intercontinental Exchange Inc uses to track the greenback against currencies of six US trading partners, gained 1 percent to 82.273, and reached the highest since Aug. 20 last year.

Investors have sought the dollar against the euro as short-term interest rates have swung to the US currency’s favor.

The difference between the rate on a two-year interest-rate swap denominated in euros and that in dollars has narrowed to five basis points from about 27 basis points in January. Swap rates typically mirror the trend of movements for similar-maturity government debt yields.

“Front-end yield spreads between the eurozone and US have moved measurably against the euro for the past month,” Robert Lynch, a New York-based currency strategist at HSBC Holdings Plc said in a telephone interview. “That’s after having moved measurably in favor of the euro in the prior two months.”

Futures traders are betting the euro will weaken against the dollar, reversing to a net-short position of 9,394 contracts as of Feb. 26, figures from the Washington-based Commodity Futures Trading Commission show. The week before, large speculators held a net-long position of 19,103 contracts.

Wagers that the British pound would fall against the dollar rose to 36,130, the most in a year.

The yen weakened yesterday by the most to the dollar since Feb. 11. Japan’s currency has declined for five straight months, the longest streak since 2008.

The Bank of Japan (BOJ) may add monetary stimulus as early as April as prospective governor Haruhiko Kuroda looks to demonstrate a more aggressive approach to tackling 15 years of falling prices.

Kuroda, currently the Asian Development Bank president, would take office after BOJ Governor Masaaki Shirakawa retires on March 19, if confirmed by Japan’s parliament following his official nomination on Thursday.

Markets were buffeted by the standoff between Democrats and Republicans about how to replace the cuts totaling US$1.2 trillion during nine years, known as the sequester, US$85 billion of which would occur in the remaining seven months of this fiscal year.

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